How Will the Italian Digital Services Tax Affect the Trade Relations With the U.S. and China?

Abstract

In 2020, Italy has implemented its Digital Services Tax (DST), in line with the one proposed by the European Commission and then implemented by other countries such as the U.K., France and India. The objective of the tax is to tax the “digital giants”. As the first payment of this tax will be in February 2021, some effects are still uncertain. However, several Italian media companies have already complained about being hit by the DST even though they do not belong to the category of “tech giants”. Moreover, some issues arising from the tax have been put forward in the policy debate. Indeed, there are privacy issues arising from the obligation assigned to digital companies to detect their users’ location. Secondly, being a turnover tax, the DST can easily be rebated on consumers, therefore missing its key purpose. Furthermore, the DST originates trade problems as it can be considered a custom duty on the import of digital services. The U.S. have already announced retaliation on the goods coming from Italy and from all the countries that adopted a DST. China too, whose digital companies have not yet become popular among Italian users, might soon be in the same situation. Especially after the COVID-19 pandemic, some Chinese platforms, such as Tiktok, are becoming more popular in Italy and might be soon subject to the DST. This might be the right time for the OECD and the G20 to intervene on the matter, with the goal of reducing tensions and prevent further unilateral actions.